More details of Anti-epidemic Fund was released by HK government on 12 May2020, which includes a massive subsidy for the catering sector. Together with theprojected traffic recovery, we have now turned more positive. We adjusted ourEPS by -63%/ +15%/ -1% in FY20E/ 21E/ 22E and upgrade to BUY and lifted TPto HK$ 15.98, based on 19x FY3/21E P/E (unchanged), vs its 5 years avg. of 21x.
Announced further details about Anti-epidemic Fund. HK governmentissued 3 rounds of measures totaling HK$ 287.5bn and we believe CDC iseligible to two of them (but can only pick one): 1) Employment SupportScheme (funding commitments up to HK$ 81bn) and 2) Catering Business(Social Distancing) Subsidy Scheme (funding commitments up to HK$ 9.5bn).To err on the side of caution, we only factored in HK$ 200mn in ourmodel for FY21E.
1) Employment Support Scheme. All employers who have been making MPFcontributions to employees are eligible and wage subsidy is based on 50%of monthly salary (capped at HK$ 18,000) for 6 months, as long as 1) thereare no redundancy of staff and 2) not less than 50% of subsides are used forsalaries. According to our estimates, 6,000/ 1,400 full/ part-time staff in HK,with avg. salary of HK$ 15,620/ 5,250 are entitled to the subsidies, totalingRMB 300mn in FY3/21E.
2) Catering Business (Social Distancing) Subsidy Scheme. Each premisecan receive subsidies up to HK$ 250k-2,200k, depending on its licensed areaper premise, as long as: 1) there are no layoffs and 2) not less than 80% ofsubsidies are used for salaries. Based on 351 stores in Hong Kong forFY3/21E, we estimate potential subsidies of HK$ 350mn (assumed avg. areaper premise at ~350 sq m).
HK catering sales dropped by 33% YoY in 1Q20, but we expect bottomout and gradual recovery. Catering sales in HK were hit hard by COVID-19, down by 33% YoY in 1Q20 (-11%/ -47%/ -42% in Jan/ Feb/ Mar 2020),even worse than -14% YoY in 4Q19 but slightly better than CMBIS est. of -43% YoY. By type, sales for Chinese/ Non-Chinese/ Fast food restaurantswere down by 40%/ 36%/ 17% YoY. After a slightly better Mar vs Feb, wenow expect a gradual improvement, boosted by relaxation of the socialdistancing order on 21 May 2020 and zero local infections for over 2 weeks.
Upgrade to BUY and lifted TP to HK$ 18.31. We adjusted our EPS by -63%/+15%/ -1% in FY20E/ 21E/ 22E, to factor in profit warning and potentialsubsidies. We upgrade to BUY and lifted TP to HK$ 18.31 based on 19xFY3/21E (unchanged). Since the worst will be over in Apr-Jun 2020, in ourview, its current valuation of 17x FY3/21E is attractive, vs 5 years avg. of 21x.